Reversal under Rule 42/43

[Sachin Jain]

Dear Sir,

Advance received for Services in the month of March 2018 (GST discharged) and actual invoice raised in July 2018.

For the reversals under Rule 42/43, in which year turnover to include this transaction- 2017-18 or 2018-19 ?

Request you to provide your expert views along with relevant section and rules. Also, if this is to be included in year of advance receipt, then why how to estbalish the nexus between section 7- supply and section 13- time of supply.

[KASTURI SETHI]

The subject transaction will be accounted for in the year 2017-18. You want to correlate Section 7 (Scope of supply) and Section 13 (Time of supply). Whether required ? Section 7 is not subject to Section 13 and vice versa. Moreover, time of supply and accounting treatment both are different concepts.

Pl. elaborate your query.

[Sachin Jain]

Thank you sir for your prompt response.

Basically i wanted to understand why this advance will be included in the turnover of 2017-18. Is this because supply definition says supplies made or "agreed to be made" ?

If this is the understanding, then whether advances received for taxable goods/ exempted goods will also be included in the turnover in which advance is received ?

[KASTURI SETHI]

Advances received against taxable goods are not subject to GST. Only advances received against taxable services are subject to GST. See the difference.

[Sachin Jain]

Yes, i understand that advance on goods is not taxable. That's why i asked that what's the nexus between section 7 and section 13.

As per my understanding, anything to be added in turnover definition( for the purpose of rule 42/43 reversals) must first be termed as supply. So first we need to prove that advance received is a supply- for services as well as goods. Further, section 13 (time of supply) only specifies the time at which we need to pay the liability. Do we mean to say that section 13 determines when a supply can be treated as supply for the inclusion in turnover definition. i hope am able to explain my doubt.

[Ganeshan Kalyani]

Section 13(2)(b) states that the date of receipt of payment is the time of supply if the invoice is not raised within the period prescribed. So, the turnover of service shall be included in the year in which the advance is received. However, as per accounting the same will be considered in the year in which the invoice is raised. Hence, these two different treatment will form part of reconciliation. In annual return, such scenarios are required to be disclosed. Thanks.

[CSSANJAY MALHOTRA]

Reversal has to be made in FY 2018-19 and Turnover is to be considered when the Supply invoice is raised, which in ur case is 2018-19.

Refer proviso of Sec 2(31) as follows:

31) “consideration” in relation to the supply of goods or services or both includes––

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

[Ganeshan Kalyani]

Advances are just a deposit unless the same is adjusted against a supply of goods or services.

Sanjay Sir your view is clear.

[Sachin Jain]

Note: Advances are adjusted in subsequent months from the supplies made.

AI Summary

Time of supply: advances for services treated at receipt determine turnover inclusion, requiring reconciliation with accounting. Advances for taxable services are treated as supply at the date of receipt when invoice is not issued within the prescribed period, triggering turnover inclusion for GST; advances for goods are treated as deposits and are not taxable unless applied as consideration. Time of supply (GST liability) and accounting recognition (invoice date) differ, requiring reconciliation and disclosure in returns.